Investor Highlight: Katherine Swanberg

This month’s investor highlight, mortgage broker and investor Katherine Swanberg, is a family friend of our executive editor. She is vice president of the Real Estate Association of Puget Sound and has experience in lease options, multi-family construction, raw land and foreign real estate.

For more information about Swanberg, listen to her audio interview.

NuWire: What first led you to real estate investing?

Swanberg: I read Rich Dad, Poor Dad by Robert Kiyosaki. I think that book has probably done the most for me. 

When I read that book I was an employee. I was working for somebody. I had no investments. I hadn’t started saving money yet. Since I’ve read that book I have become self-employed, purchased a business and am very active in real estate investing.

NuWire: What kind of investment transactions have you done?

Swanberg: Most common is buy and hold. I’ve actually never sold a property. I have 20 houses right now in my portfolio that are single family up to fourplexes.

I’d probably say half the homes I have are single family; the rest are multi-family....The majority of those are rented out or I have lease option tenants living there with the intent to sell them the home after 12 to 24 months.

I’ve done a couple of new construction deals where I’ve purchased land and got construction financing and built multi-family and then those I’ve kept. So that’s been the most common strategy for me.

NuWire: What have been your most profitable projects?

Swanberg: There [are] a couple deals I’ve done that have been new construction. The properties that performed the best are the ones that were brand new, that I built myself. They have the best cash flow and they also are turn-key. There’s zero maintenance and I’m able to ask for the highest amount of rent in the neighborhood because I’ve got the nicest-looking property in the neighborhood.

Swanberg's latest project in Eastern Washington

As far as my lease options, actually buying used products or used homes, I’ve structured several different lease options where my tenants have actually put 10 percent down up front when they moved in.

I know you’ve heard a lot of people will say you make money in real estate when you buy; not when you sell.

Those were the first two deals where I’d really been paid my profit up front before I’d even purchased the home. So those are really exciting for me because I had fully vested tenants that have a massive incentive to perform, keep the house in good shape and get their credit in a position where they [can] buy. And whether they did or didn’t was okay with me because I’d already made my 10 percent up front.

NuWire: Can you tell me about the hardest lesson you’ve learned so far?

Swanberg: I’m going through an eviction right now, and I realize that I have a desire to make my tenants happy, and to be able to be compassionate when they can’t pay their rent on time, and to be able to bend the rules that I’ve actually put in place with a really solid lease agreement, and honor certain things that make it maybe easier for my tenants to pay rent on time.

And I’ve learned the hard way that that is not a way to run a business. I have to follow my contracts to a tee and I have to enforce them.

NuWire: What would you say is your biggest accomplishment?

Swanberg: I’m really proud of the number of properties I’ve been able to buy with an extremely small amount of money. It feels really good to understand the concepts of leverage and also systemizing my business. 

It feels great to look at my assets and see all of the different kinds of homes that I’ve been able to acquire.

I love knowing that they’re appreciating every year. I can use them to leverage. I can take money out of them to buy more properties, and it’s an awesome feeling. I feel very much like I’m headed in the right direction.

NuWire: What’s your thought about people who are quitting their job to pursue investing full-time?

Swanberg:  I think if you’re set up in a way where your credit is strong and your assets are strong and you’re in a good financial position for a couple of years and you don’t need to have the cash flow from a job, that’s awesome. That’s fantastic.

But what I see a lot of times is that people do one deal and they turn a nice profit on that deal and they quit their job. But they haven’t necessarily put into their life a system so that they have replaced their job with a new job of being a full-time investor, which comes with again managing your business like it should be managed. 

So they do a deal and they have a great success, but then they quit their jobs and they haven’t put systems in place to duplicate that success over and over and over again. Those are the people that I worry about the most. 

NuWire: How do you define success?

Swanberg: I don’t care what your goals are; if you’ve been conscious enough to write them down and have a clear idea of where it is you want to head and you can track that and see that you’re heading in that direction, I think that’s success right there. 

I don’t think there’s any end result. I think it’s a continuous process of constantly [being] accountable for yourself and being very clear what your intentions are. And not forgetting to dream because I think a lot of people get trapped into the rut of just earning income for their family every day and they’ve stopped paying attention to what it is they’d really want to do. So that is success for me, when I see people reaching that.

NuWire: What do you love most about investing?

Swanberg: I love understanding the financial ramifications of every choice I make. I love the tax consequences. I love the books. I don’t like doing the books, but I like understanding the benefits of what I’m doing.

I like teaching. I like giving back to people the information that I have. It’s...the most comprehensive, most positive thing I’ve ever done. I like learning and I like pushing the envelope. There’s no other industry I’ve ever been [in] that’s caused me to do that more than this.

NuWire: What’s the most common investment mistake that you see investors make?

Swanberg: I have seen a lot of first-time people that want to fix and flip. They finance 100 percent of their rehab cost on high interest credit cards. It’s maybe their first couple of deals so they haven’t put together a budget. They haven’t figured out what they can actually sell the home for when they’re done. And they haven’t factored in their profit margin very well. They just didn’t analyze the deal all the way to the end. 

So they are in a position when they finish fixing up the home where they go to sell it and they find out they can’t sell it for what they need to get back out, what they need to be at a net of zero, let alone a profit. I see that a lot. 

So they put themselves in a position where their credit’s now suffering and their stress is really high and they’re not in a position where they can make the minimum payments on their credit card and there’s a spiral down from there.

NuWire: Do you think a lot of the interest in seminars and the reason that a lot of people are coming to you and wanting to do fix and flips is the fascination with making the quick buck, the easy money?

Swanberg: Absolutely. Real estate as an investment tool is super trendy right now. There was a time before real estate where network marketing was very trendy and very popular.

There was a time in the ‘60s where door-to-door sales were extremely popular and very in fashion and very accepted. Right now it’s real estate as an investment tool.

So you’ve got people that hate their jobs and aren’t making it financially and they’re looking for a way to get rich quick. I don’t look at real estate as an investment vehicle and getting rich quick as two things you should ever say in the same sentence.

I’m planting seeds very deliberately and I’m going to reap the rewards later, but I don’t look at it as a get rich quick scheme. But I do agree. I think there are a lot of people that are looking for something like that and they’ll go anywhere and they’ll buy anything if they can just do one deal and have the quality of their life changed.

NuWire: What do you think it is that separates those people that end up becoming successful investors from those that are unsuccessful?

Swanberg: If you’re going to do real estate investing full-time or even part-time, you’re going to be self-employed. So you’re going to be responsible for all aspects of that business, not just one aspect. 

That’s not a really strong quality in everybody. There are a lot of people that have never worked for themselves before, that have always worked for an employer. So they’ve always had a job description and they’ve done the same thing every day. 

But if left up to their own devices, without a boss or without a salary, do they have the ability to manage their time well and write their own business plan and follow their own direction?

If they don’t, this isn’t going to be a good fit for them. And if they do, they’re going to excel far more than they ever would working for somebody else.